Your accounts: Make sure you have correct beneficiaries

“A son can bear with equa­nim­ity the loss of his father, but the loss of his inher­i­tance may drive him to despair.”

—Nic­colo Machiavelli

The hor­ror sto­ries are end­less, but the main plot is nearly iden­ti­cal in all cases. It usu­ally goes some­thing like this: A newly wid­owed wife receives the con­so­la­tion of fam­ily and friends after the death of her hus­band of 40 years. He had worked hard his whole life and loved his wife and chil­dren with all his heart. Her lawyer is meet­ing with fam­ily to final­ize the dis­tri­b­u­tion of his estate. He begins with the read­ing of his will and moves on to nam­ing ben­e­fi­cia­ries of his finan­cial accounts. To the sur­prise of the entire fam­ily, this lov­ing hus­band and father has left his entire 401k account, not to his wife and chil­dren, but to his ex-wife. You see, he had entered into a mar­riage right out of school that ended quickly. He had also started his new job and had listed his new wife as the ben­e­fi­ciary of his retire­ment account. When he met the love of his life, he just never gave a sec­ond thought to mak­ing sure his wife would receive the money if he were to die. Despite a bit­ter legal bat­tle, the ex-wife received the funds as requested on his retire­ment plan documents.

The power of list­ing ben­e­fi­cia­ries on finan­cial accounts is often under­stated and even more often han­dled incor­rectly. It is a very com­mon occur­rence for indi­vid­u­als to be unsure who is listed as ben­e­fi­cia­ries on their accounts with no idea where the doc­u­men­ta­tion is located that states the cur­rent list­ings. Peo­ple often think of ben­e­fi­cia­ries in the con­text of life insur­ance and IRA’s, but did you know that nearly all accounts can list ben­e­fi­cia­ries like check­ing and bro­ker­age accounts? This is one of the eas­i­est and most over­looked areas of estate planning.

Maybe you have con­cerns about your estate going through pro­bate because of the cost and risk of the entire process. You might even be look­ing into var­i­ous trusts sim­ply to avoid pro­bate. What if you could avoid pro­bate of your accounts with a sin­gle sig­na­ture with no addi­tional cost? You can… Sim­ply list a ben­e­fi­ciary through a Trans­fer on Death (TOD) or Payable on Death (POD) des­ig­na­tion. While there are cer­tainly more com­plex sit­u­a­tions that will ben­e­fit from the use of trusts, often a sim­ple list­ing of a ben­e­fi­ciary will accom­plish your goal of trans­fer­ring your wealth with­out the has­sle of probate.

When con­sid­er­ing ben­e­fi­cia­ries, there can be many tax and legal issues that must be taken into account. List­ing minors will require a guardian be setup to man­age the funds until they become of age and there can be tax ram­i­fi­ca­tions for list­ing a trust as a ben­e­fi­ciary of cer­tain accounts. You should always list sec­ondary ben­e­fi­cia­ries as well for added protection.

First, gather together all the doc­u­men­ta­tion you have that lists your cur­rent ben­e­fi­cia­ries and con­firm they are cor­rect. This may require a phone call or two to the var­i­ous finan­cial and insur­ance com­pa­nies hold­ing your money. Sec­ondly, meet with your pro­fes­sional team that should include your attor­ney and CPA to be sure that your ben­e­fi­ciary list­ings are coor­di­nated cor­rectly with your over­all plan. Finally, keep copies of your cur­rent ben­e­fi­cia­ries along with account infor­ma­tion in the same loca­tion as your estate doc­u­ments. This will save your heirs hours of work and worry. Tak­ing a lit­tle time to be sure this area of your estate plan is in order is a labor of love that will bless your heirs, ensure your wishes and estab­lish your legacy.

RC Arse­neau is a Cer­ti­fied Finan­cial Plan­ner and lives with his fam­ily in Delaware. Please sub­mit any ques­tions or topic requests to AskRc@mail.com.

The infor­ma­tion and opin­ions in this col­umn are pro­vided only for edu­ca­tional and enter­tain­ment pur­poses. Any ref­er­ence to a finan­cial prod­uct or strat­egy is not to be con­sid­ered an endorse­ment or rec­om­men­da­tion. The infor­ma­tion is of a gen­eral nature only and does not take into account your indi­vid­ual objec­tives, finan­cial sit­u­a­tion or needs. It should not be used, relied upon, or treated as a sub­sti­tute for spe­cific pro­fes­sional finan­cial, legal or tax advice. Invest­ment Per­for­mance may vary due to tim­ing and expenses. Rc rec­om­mends that you obtain your own inde­pen­dent pro­fes­sional advice before mak­ing any deci­sion in rela­tion to your par­tic­u­lar require­ments or circumstances.

Posted by RC Arseneau on Oct 16 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.